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Unit 28 : International Debt Crisis

Official estimates exclude short-term debt; that is, debt with an original maturity of less than one Notes
year. The 1982 gross short-term external indebtedness of developing countries exceeded $120 billion
for non-OPEC developing countries and may have been as much as $175 billion for all developing
countries. However, the short-term foreign assets of developing countries, including non-OPEC
developing countries, are about the same as their short-term foreign debts. Thus, it is appropriate to
ignore short-term debt in estimating the total external indebtedness of developing countries. In contrast,
the medium- and long-term foreign assets of developing countries fall far short of their total external
medium- and long-term debts.
The OECD data show that U.S. and other free world bank medium-and long-term loans other than
2
export credits were $182 billion, or 35 percent of the grand total, and that more than 20 percent of all
loans were at “concessional” rates and terms. From an analytical standpoint, the importance of the
first fact is that exposure of the free world’s banking system to defaults by Eastern bloc nations and
LDCs is much less than their total indebtedness; excluding export credits, it was $182 billion at year-
end 1982. The importance of the second fact is that the burden of the external debts of developing
countries cannot be gauged by looking only at the size of their debts.
The total medium- and long-term debt of Eastern bloc nations and LDCs and the bank subtotal are
dramatic statistics, but they are not meaningful ones, since they differ depending on what nations are
aggregated in estimating them, and the bank debt subtotal also depends on whether export credits
are included. Moreover, the fact is that there is no aggregate Third World debt problem. Banks are
exposed significantly in some developing countries and hardly at all in others. Further, different
countries have different capacities to handle debt, and their capacities will be affected differently by
the same event; for example, by a change in the price of oil or in interest rates. Debt, as the OECD
points out, is “a phenomenon which manifests itself at the level of individual countries, rather than
in aggregates and averages.” Country specific data on the exposure of U.S. banks and the ability of LDCs
to service their external debts are discussed in the sections that follow.
Exposure of U.S. Banks

In its 1982 Survey, the OECD estimated that if all borrowers, sovereign and private, in all non-OPEC
developing countries in Eastern Europe, Latin America, the Caribbean, Asia, and Africa repudiated
their year-end 1982 external debts, U.S. and other free world banks would face balance sheet write-
offs of $159 billion. The OECD, in its tabulation of data on “Lending and ‘Exposure’ of Banks to Non-
OPEC Developing Countries,” provided the following estimates of outstanding disbursed amounts
at year-end 1982 :

Bank Credits and Exposure $ Billion

1. Short-term credits 134
2. Medium- and long-term credit 231
A. Officially guaranteed export credits 49
B. Financial loans and credits 182
3. Total outstanding (1 + 2) 365
4. Deposits with BIS banks 157
5. Total net bank “exposure” (3 — 4) 208
6. Net bank “exposure” excluding
guaranteed export credits (5 — 2A) 159

2 In testimony before the House Banking Committee on 2 February 1983, Federal Reserve Board Chairman
Paul A. Volcker stated that non-OPEC developing countries owed banks here and abroad $268 billion and
their total debt was $550 billion in mid-1982. However, the Federal Reserve’s $268 billion subtotal includes
certain export credits that are not included in the OECD’s $182 billion subtotal. This accounts for the major
part of the difference between the two figures.

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